The Rising Cost of Home Buying in the Algarve: A 2024 Perspective

The real estate market in Portugal, particularly in the Algarve region, is continuing a significant transformation, marked by an escalation in housing prices that has made buying a home increasingly challenging for prospective homeowners. According to the National Statistics Institute (INE), house prices rose by an astonishing 7.8 per cent in the second quarter of 2023 compared to the same period in the previous year. This significant increase is exemplified by a property that was valued at €2,000,000 in June 2022, which has now surged to €2,156,000—a stark reminder of the market’s upward momentum.
One might assume that such continuous price increases would temper purchasing activity; however, recent data reveals a contrasting trend. INE reported a 10.4 per cent increase in the number of property transactions between April and June 2023, marking the first uptick in transactions since 2022. This refreshing surge in activity can be attributed primarily to a decline in interest rates seen throughout the year, which has made mortgage instalments somewhat more manageable for homebuyers. The decrease in borrowing costs has, therefore, provided a temporary lifeline to those aspiring to enter the housing market amidst rising prices.
An intriguing aspect of the current market dynamics is the disparity in price increases between new and existing homes. INE indicates that existing homes experienced a notable price increase of 8.3 per cent, while new homes saw a comparatively milder rise of 6.6 per cent. This phenomenon suggests that existing homes are potentially undervalued in the eyes of buyers, leading sellers to raise their asking prices significantly. Conversely, new homes, which are likely priced at the market’s peak, exhibit lower price growth, possibly reflecting the saturation of the market at the higher price points.
Despite the overall increase in transactions, there has been a noticeable decline in purchases made by foreign buyers—a significant segment of the market. During the last three months leading into summer, a total of 2,464 homes were sold to foreign nationals, constituting only 6.6 per cent of the overall transactions. This contraction could be attributed to various factors, including economic uncertainties in global markets that may deter foreign investment in local real estate.
Analysing the geographical distribution of sales reveals that the Northern region of Portugal was particularly attractive to buyers, with nearly 30 per cent of all homes sold occurring there. In contrast, regions like the Centre and Alentejo saw an uptick in sales compared to the previous year, while the Algarve experienced a decline in the volume of homes sold. The decline in the Algarve market is especially concerning, given its reputation as a favoured destination for both domestic and international buyers.
In a nutshell, the real estate market in the Algarve is characterised by rising prices, with significant variances between existing and new homes. While the increasing transaction numbers signal a recovery in market activity driven by lower interest rates, the observation of declining foreign interest raises questions about the future stability of this burgeoning market. As the landscape continues to shift, prospective buyers must navigate these complexities while seeking to achieve homeownership in an increasingly competitive environment.